Avoiding credit score ‘black marks’ from credit cards

Co-author Michelle Norton 

Canstar reveals common ways people ruin their credit scores – and how you can avoid making the same mistakes

credit score or credit rating is one of the most important factors in your financial life. A credit history report allows lenders to do a credit rating check on your financial fitness before giving you credit. Further, landlords, insurers and potential employers can also check your credit history.

Unfortunately, many poor financial decisions can show up on your credit score, and follow you wherever you go. Here are 10 financial moves to avoid, to give you the best shot at a healthy credit score.

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Missing a credit card or loan repayment

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Making late payments or missing repayments on credit cards or loans is a sure fire way for borrowers to ruin their credit score. A large majority of your credit score is based on your payment history, so make sure you budget around those monthly bills. It’s not just your credit cards and loans that you need to pay on time, either. Even your phone plan and utilities bills will show up on your credit history if you don’t pay them on time every single month.

And, even aside from damaging your credit score, failing to make required repayments means racking up unnecessary interest. This could be a good time to compare credit cards to check you’re using the most suitable product, or to see whether it’s a good time to have a credit card at all.

Maxing out your credit limit

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“Maxing out” your credit card by spending up to your credit limit is a risky business. When calculating your credit score, lenders consider your credit utilisation ratio (also called the debt utilisation ratio or debt-to-credit ratio), which is the amount of available credit you are currently using.

Most online sources agree that a credit utilisation ratio of about 50% will begin to affect your credit score. Spending between 10% to 30% of the available credit limit may be less likely to hurt a borrower’s credit rating.

Applying for balance transfers too often

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Every time you apply for a balance transfer to repay a credit card debt, an official enquiry is made on your credit report. So how often is too often for balance transfers?

Back-to-back balance transfers are when someone transfers their credit card debt onto a new card with a balance transfer interest rate, doesn’t repay it during the balance transfer timeframe, and transfers it to a new balance transfer card.

By doing this, a borrower is almost certain to be seen as unreliable or unable to meet the required repayments, and it can negatively affect your credit score.

Closing credit cards that have a good repayment history

Another common mistake that people make is closing credit cards that they’ve faithfully repaid for years.

You may think it makes sense to close a credit card if you’ve paid it off completely and you no longer need to use it. It does make sense – but keep in mind that a “good account” like this helps your credit score. Closing the account means it won’t contribute to making your credit score look reputable to lenders.

Applying for several credit cards or loans at the one time

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Applications for credit cards or loans – which lenders call “enquiries” – have a definite impact on your credit score. Making several credit or loan applications to different lenders, within a short period of time, makes you seem desperate for credit, and negatively affects your credit rating.

Getting a ‘judgement’

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In worst case scenarios, creditors will sue borrowers for unpaid debts. If the court rules a ‘judgement’ that the person must repay their debt, this is a big black mark on your credit history.

It shows that not only did you avoid paying your bills, but to such a severe extent that the court had to get involved. This is something that will ruin your credit score and make it extremely difficult for you to take out a loan again.

Ignoring errors on your credit report

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Errors or inaccuracies are introduced in many ways but, not knowing about the errors, or ignoring the errors and not fixing them, is an easy way to ruin your credit score.

Some bills and payments, such as medical expenses or hospital bills, go through a long process before billing you and are therefore more likely to introduce errors or inaccuracies. If you have to fix up a problem with a bill, it’s also wise to go online and check your credit report to see whether it has been affected by the error.

Credit reporting agencies in New Zealand

There are three credit rating agencies which will generate a credit history report for you. Agencies in New Zealand include:


Not alerting creditors when you change your name

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While this may sound trivial, it’s one of the most common reasons for inaccuracies on credit reports. If you get married or divorced, you must inform all financial institutions about this change of details so that no mistakes end up on your credit report.

Another thing to consider is that while credit reporting agencies (credit bureaus) may keep separate credit scores for spouses, the actions of your partner can still impact your credit score. If one spouse fails to pay a joint bill or joint credit card on time, both of your credit scores will be negatively affected.

Borrowing money to boost your credit score

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As unbelievable as it is, there are actually scam credit schemes that bill themselves as “credit score boosters”, often based outside New Zealand. The scheme entices people to pay to be an authorised user on a line of credit with a perfect record to influence their credit rating, known as “piggy-backing”.

The scheme can be incredibly expensive to join, and requires all of the person’s identification information. Borrowers are better off using their money to repay existing debts than wasting money on quick-fix scams.

Real ways to fix a bad credit score can be found on our website, but in short, they do take some time to implement. The sooner you start acting to improve your credit score, the sooner it will improve.

Not regularly checking your credit report

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Following on from number 7, it’s important to check your score regularly, to see if there’s anything there that shouldn’t be.

Unfortunately, identity theft and fraud are common crimes in this technological society. By regularly reviewing your credit report, you can check that no one is using your name to borrow money or run up serious debts.

It’s easy to check your credit score and get a free copy of your credit history. Don’t put it off!

And, if your credit score is looking good and you’re ready to apply for a loan or a credit card, compare your options using our website:

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